Greece Macro Monitor (December 10, 2015)

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Dr. Platon Monokroussos,  Chief Market Economist, Deputy General Manager, Eurobank Ergasias S.A

Dr. Platon Monokroussos, Chief Market Economist, Deputy General Manager, Eurobank Ergasias S.A

Greece – Lower bank recapitalization needs point to improved public debt dynamics, reduced borrowing requirement relative to earlier projections

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Based on the most recent domestic macroeconomic developments this note presents new projections on the general government borrowing needs and sources of funding over the entire time horizon of the new bailout programme and beyond. Furthermore, it provides an updated analysis of public debt dynamics and the potential (cash flow and stock) impact of a new relief package, which is expected after the successful completion of the 1st programme review. Some of the main findings of the analysis can be summarized as follows: a)  under the present baseline macro scenario, the overall amount of official creditor loans needed to cover Greece’s public sector borrowing requirement over the 3-year horizon of the new bailout may prove lower than expected earlier; b) the aforementioned view is primarily supported by the recent recapitalization of Greece’s four systemic banks, which necessitated significantly lower financing from official sources relative to earlier expectations; c) 2016 expected to be more manageable than this year in terms of debt service payments; d) the present burgeoning level of public debt remains a problem, but recent developments point to less severe dynamics than expected a few months earlier; e)  a new relief package including significant maturity extensions and payment deferrals on old and new EU loans given to Greece in the context of the three bailout programmes could go a long way towards soothing sustainability worries; and f) the high interest-rate sensitive of Greek public debt argues in favor of a further interest rate reduction on EU loans in the context of  a new debt relief package.

GREECE MACRO FOCUS December 10 2015

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